1. Field
Embodiments of the present invention relate generally to the field of financial advisory services. More particularly, embodiments of the present invention relate to systems and methods for the provision of tax-efficient advice in connection with recommending portfolio allocations among a set of available financial products potentially spanning multiple accounts, including brokerage accounts and tax advantaged accounts.
2. Description of the Related Art
In view of the ongoing shift in retirement savings towards employee-directed defined contribution plans like 401(k), many individual investors have become responsible for managing their own retirement investments. Unfortunately, many people are not well-equipped to make informed investment decisions. Further, the number and diversity of investment options available to individuals is rapidly increasing, thereby making investment decisions more complex by the day.
Many investment software packages claim to help individuals plan for a secure retirement, or some other intermediate goal. However, typical prior art investment software packages are limited in several ways. For example, some packages provide generic asset-allocation suggestions (typically in the form of a pie-chart) and leave the investor to find the actual combination of financial products that meets the suggested asset allocation. However, many investments available to individual investors, such as mutual funds, cannot easily be categorized into any one generic asset class category. Rather, mutual funds are typically a mix of many different asset classes. This property of mutual funds complicates the selection of appropriate instruments to realize a desired asset allocation.
Further, some prior art programs, typically referred to as “retirement calculators,” require the user to provide estimates of future inflation, interest rates and the expected return on their investments. In this type of prior art system, the user is likely, and is in fact encouraged, to simply increase the expected investment returns until their desired portfolio value is achieved. As should be appreciated, one of the problems with this type of program is that the user is likely to create an unattainable portfolio based on an unrealistic set of future economic scenarios. That is, the portfolio of financial products required to achieve the X % growth per year in order to meet the user's retirement goal may not be available to the user. Further, the idealistic future economic conditions assumed by the user, for example, 0% inflation and 20% interest rates, may not be macroeconomically consistent. Typical prior art investment packages simply allow the user to manipulate economic conditions until a desired result is achieved rather than encouraging the user to focus on his/her own decisions regarding investment risk, savings rate, and retirement age within the context of realistic economic assumptions. Consequently, the so called “advice” rendered by many of the prior art investment software packages can be misleading and impossible to implement in practice.
In addition, prior art investment advice software have various other disadvantages. Notably, prior art systems do not take into consideration various tax consequences of the advice dispensed, such as unrealized capital gains/losses relating to current investments, differentiation among accounts and assets possessing different tax characteristics and investor-specific tax consequences.